‘Why some banks ran into trouble’

About four years ago, a tsunami hit some banks when their management teams were sacked by the Central Bank of Nigeria (CBN). Those banks have since been given to others to manage and they are today doing fine. What really went wrong? Mr Ahmed Kuru, Group Managing Director of Enterprise Bank Limited, which evolved from Spring Bank, said their undoing was lack of good corporate governance. He spoke on this and more to reporters. Deputy Business Editor SIMEON EBULU was there.

What are the specific figures as regards Enterprise Bank’s improvement?

I will give you figures. We have grown our deposit by 27 per cent. The industry average growth rate is 15 per cent, and we have grown ours by 27 per cent between last year and now. On loan book, the industry growth rate is 16 per cent, we have grown ours by 200 per cent. In total asset, the industry growth rate is 15 per cent; we have grown that of Enterprise Bank by 26 per cent. On return on investment (ROI); which is also important, the industry rate is seven per cent; we have achieved about 20 per cent and by any standard anywhere in the world if your ROI is 20 per cent, it shows that you are not destroying value. In the previous year, the bank was in a loss situation, now we have reported profitability in billions, I don’t want to mention figures; because the auditors and the Central Bank of Nigeria (CBN) are checking our books. I can tell you that our corporate communications in the next three weeks or one month would furnish you with the actual figures.

How do bankers operate? A legacy bank was taken over by the CBN and the same CBN appointed managements that didn’t perform well, sacked them and paid them huge amount of money. Why pay those who have not performed well?

You say our predecessors were paid huge sums of money, I’m sure some of them would have contested for political offices. Every management has a different mandate. When the previous management came on board, at that time there was an intervention, after the CBN’s special examination of 2009, the banks were almost collapsing, so the CBN wrote them to stabilise the situation and find core investors. This was their mandate, stabilise the situation and find core investors.

At the end, they succeeded in stabilising the banks. Five of the 10 institutions succeeded in finding core investors, the only three that couldn’t conclude because the Central Bank of Nigeria (CBN) gave a deadline, they now have to intervene and appointed a management to complete the cycle, they came to stabilise and get core investors, and they were able to achieve the mandate that was given to them by the CBN. We were appointed to come and run these institutions as commercial entities. When we came on board, we were not challenged by issues of negative assets or inadequate capital; by the time we came, all those issues had been addressed by the Asset Management Corporation of Nigeria (AMCON) that purchased these institutions.

So, we were given the institutions and mandated to run them commercially and competitively, and I think that’s what we have done and what we are doing and we are on the right track. These three banks are strong enough today to compete competitively with all operators in the industry. Anybody that was appointed was based on contract; so they are, ultimately, compensated at the end. I will not define the amount paid to them as huge; but I think they were adequately compensated based on their assignment. And, of course, because we were appointed to come and run the institutions commercially, we have to tread with caution.

The last pronouncement by AMCON was that the nationalised banks would be sold next year. Would this have any setback on your operations?

Yes, AMCON made a statement that they wanted to sell the institutions either next or this year or two years time. For us that means nothing. What is important to us is to run the institutions commercially, profitably and put all the structures on ground to ensure that business continues; because whoever steps in to buy the banks, is not coming to buy structures, he is coming to buy the value that is in the structures. He is coming to buy quality of the customers, balance sheet, quality of staff and infrastructure etc.

Those are the things that a buyer will want to see. To run the bank profitably, these are the areas we are concentrating; we are not involved in issues of if they are selling or not; because we have three-and-five-year plans. Of course AMCON’s pronouncement does affect us once in a while because everybody wants continuity. I can tell you if you go into the institution, you will see how the processes are, considering how our customers are well taken care of. Anybody who is well attended to will like to come back and continue patronising the bank and if you are a good staff, anybody that takes over will want to retain you. As I said earlier, we have a three to five year plan and we are pushing it.

What does your logo signify?

The logo is deliberately designed the way it is, just a shadow, so that the black and yellow colours will show as a spirit of our enterprise. It explains how the eagle flies and, ultimately, takes care of us.

The financial inclusion that the Bankers Committee want to pioneer and kick off in Borno State, will you send your staff to the rural areas of Borno State, considering the current security situation in that place?

We are aware of the security issue in Borno State. However, if you go to New York, the security risk is higher. These days in New York there are certain streets you cannot walk at night; especially when you are a black person. Yes, the issue of security in Borno is a problem; but I can say you don’t just employ people and send them to a volatile area just because you want to prove a point. Every organisation has the responsibility to protect its workers. There are people that hail from those areas and there are people in those areas; part of the structure we want to leverage on; besides, the bank branches in those locations are also to offices in almost all the over 700 local governments in Nigeria. In some of these states, in every local government you go to, there is a post office structure and how does this work? They try to put local people that speak the local dialect; they are usually the staff that manage post offices in Nigeria.

If you have a problem and go to the Post office to ask questions, you will realise that those that are there are local people. So, what we need to do is to build capacity and train them, you don’t need to carry people from other locations to a different place. Be conscious of the lives of those people that are going to manage it and try as much as you can to ensure that you eliminate any danger that may come to people you are bringing from outside.

But in all the budget that I have seen, security is always at the top and that is why the project is the one the Federal Government, states, bankers committee and security agencies are involved to ensure that no life is lost in the process; because no matter the profit you are making and putting people in danger; definitely there is a challenge in it. The security issue has been taken into consideration and some of us strongly believe that it will work because some of these security challenges also have linkages with economic empowerment and economic activities. We believe that in the banking industry we are going to do something that will benefit the society.

You mentioned that you have put structures in place, I want to believe that one of the major challenges that led to the collapse of the former banks was that of structure, I want you to be specific on what you have done on this.

What has happened is that when the CBN intervened, they realised that most of these banks got affected because of lack of good corporate governance structure. At Enterprise Bank, the first thing we did was to convene a very strong corporate governance structure. And we insisted that there must be strong policies to this regard. Also, the level of regulation has gone up. In our bank as small as we are, we have a 16-member board. We have five executive Directors; including the Managing Director, we have 10 members non-executive directors. The least amongst them was a former Executive Director in a bank; so we are very strong, we have former Managing Directors of banks and insurance companies.

We brought credible people and put them on the Board so that the corporate governance structure will be strong to avoid any abuse of process. It’s usually the abuse of process that allows banks to engage in unethical practices. So, everybody on the board is an independent character particularly now that CBN has intervened. They are professional people, Chairman of the Board is the former Managing Director of Diamond Bank, and he is a professional and disciplined banker. So, CBN has ensured that what happened in the past will not happen again, now due process is followed in whatever is done.

Are you still a medium-sized bank considering all the achievements you mentioned?

We are still a medium-sized bank. When I gave the unverified figures, and you look at it in absolute terms, if I grow by 20 per cent of N200 billion or N40 billion, and some other banks for example grows by one percent of say N5.0 trillion, in terms of size, I’m still a medium sized bank and I want to be a medium-sized bank, like I said in December 2011, we are not here for any size game or size war, we want to be an efficient bank and that is our strategy.

What is the number of depositors in Enterprise Bank?

In December 2011, we said we had about 1.5 million customers. What happens in the industry is that you always have five to 10 per cent dormancy and deposits continue to go down. We have not gone farther than the 1.5 million, because immediately we stop managing dormant accounts, you realise that naturally we have to drop so many accounts. In those days, what banks do is to go for mass market appeal, they go to the market and start opening accounts with zero balance; sometimes with N20 balance; by the time you start evaluating some of these things, you will have to move them because of administrative costs; because those accounts are not being maintained for so many years; some of them you try to pursue if after sometime you don’t get them, you have to remove them so that you will continuously have a realistic number to work with.

On your business relationship with Union Bank UK?

Union Bank UK has continued to support us; last week we had a major transaction with them,;happy with them also. We will still maintain a good relationship with them.

You have narrated the things you have done so far for the bank, which ones have you not done yet?

There are so many things that we will want to do, all those things that we have indicated are already in process. I’m working towards having a cost income ratio of 50 per cent, when I came, the cost income ratio was around 180 per cent, now I’m around 88 per cent which is a very good move; but my target is to make it 50 per cent which is good.

On loan to deposit ratio, industry average today is about 80 per cent and I’m looking at making it 15 per cent. I have not reached the level of efficiency that I want. To train is not an easy task, it takes time, you cannot turnaround all sectors regardless of whatever you have on ground in one or two years. The only thing you can do is to put those things that are necessary on track, and then you start to measure them. I think that is what we have been able to do. I want to have a traditional institution; while in terms of percentage; maybe only five percent of my customers come to my bank. I want to be a traditional institution that is leveraging on innovation and technology to deliver an efficient service, we have not achieved that; but we are on track.

Where do you think the bank will be at the end of 2013?

I want to be a formidable bank; where you can identify with me and know when you come into my banking hall I will be able to give you an efficient service; this takes time; but we are on track. I’m happy with the progress we have made so far and happy we are on the right track to be anything that we want to be in the industry. We must continue to innovate, invest in our human capital, invest in technology and have the freedom and process that we are able to do what we want to do and once we are able to put those things in place, I’m sure we will be where we want to be.

There is no going back in Nigeria, for us first and foremost, we want to take it to the next level and at the end of this year, I want to have maybe three per cent of the market, I don’t want to be like Bank A or Bank B, I want to have my own market share, I want to know that I’m making profit. I want to concentrate on the target I set for myself regardless of what every other person feels; I will then achieve my target of being an efficient and service delivery oriented bank. Be a bank that identifies with the tail end of the market regardless of size.

How many branches have you opened since coming on board?

When we were appointed, our mandate is to consolidate, and when you talk of how many branches we have opened, branches typically in a banking environment are supposed to be channels to where you offer banking services and the branch thing is gradually phasing out, the issue of having 10 branches on a particular street doesn’t count anymore; because people now want to transact business inside their houses.

So, instead of spending so much time in opening new branches, our strategy is to consolidate the 152 branches that we have, before the end of this month, we are going to open in five states and these states we were not there before, that is why we are opening them. If we had branches in these locations, we wouldn’t have done that. We want to be present in all the state capitals, so we are going there as a strategic move not the one driven by profitability; but ultimately, it must be profitable.

So, we want to make sure that wherever you are, you can reach us even leveraging on infrastructure built by other people. You can reach us on the Internet, go to the ATM. I believe things are changing; because if you go to developed countries, hardly you find the kind of banking halls that you find in Nigeria. You will see one small place, sometimes; you have to ring the bell before you go in, but if you know the kind of transaction that is happening in that office, you won’t believe it; because everything is now based on technology. As a banker 80 per cent of my transactions are done on the telephone; so the moment I have to go to the banking hall, I feel a little constrained and even you as a person, you will want to come out of your NUJ building and draw your N100,000. You don’t want to go to the banking hall to waste time; just because you want to collect cash. The emphasis will be more on technology driven channels than the kind of branch banking that we are used to.

What are you doing with the assets of the legacy bank you inherited?

The African Continental Bank (ACB) assets just like other banks assets are huge assets to the bank. What we are trying to do is to ensure that we get maximum benefit out of them; because at the end when you are going to value the institution, they will also count in that process. We are trying to extract maximum benefit out of our premises. The buildings we are not using, we will maintain them and rent them out. The plan is not to sell any asset; but to use them as a basis to earn some income.

How do you manage to cope with over regulation?

What happened in 2009 has made CBN to intervene and tighten their regulatory processes. All over the world, regulations have increased tremendously. I think the financial sector; mostly the banking industry is the most regulated in the world. The most important thing is it is for the good of the industry; because what the CBN is trying to do is to ensure that they put necessary measures in place; so as not to be caught unawares; that is why they continue to roll out guidelines. I can tell you that many of the circulars they put out are also discussed at the Bankers Committee meeting; they want to carry everybody along and as partners, we will see how to position the industry; it will not be driven by individuals, but structures; so, if anybody comes into the system, regardless of what happens, the structure will mould how he conducts himself. We are not distracted by the CBN’s regulation; but rather encouraged by it. So, we will continue to operate in a way that we do not go contrary to the CBN rules.